Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, June 6, 2011

Halliburton: Plaintiffs Need Not Prove Loss Causation at Class Cert Stage

The U.S. Supreme Court unanimously held, in Erica P. John Fund, Inc. v. Halliburton Co.(Download Halliburton), that securities fraud plaintiffs do not have to prove loss causation in order to obtain class certification.  In a 10 page opinion, Chief Justice Roberts concisely rejected the Fifth Circuit's requirement of loss causation at the class certification stage, as "not justified by Basic or its logic....Loss causation addresses a matter different from whether the investor relied on a misrepresentation...."  "Loss causation has no logical connection to the facts necessary to establish the efficient market predicate to the fraud-on-the market theory."

In fact, Halliburton conceded at the oral argument that the 5th Circuit was wrong to require plaintiffs to prove loss causation in order to invoke Basic's presumption of reliance and sought to revise the Fifth Circuit's analysis -- the court didn't mean "loss causation," it meant "price impact."  Justice Roberts made short work of this: "We do not accept Halliburton's wishful interpretation of the Court of Appeals' opinion.  As we have explained, loss causation is a familiar and distinct concept in securities law; it is not price impact."  "Whatever Halliburton thinks the Court of Appeals meant to say, what it said was loss causation....Based on those words, the decision below cannot stand."

The Court explicitly does not "address any other question about Basic, its presumption, or how and when it may be rebutted."

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